WALTHAM, Mass.—Thermo Fisher Scientific Inc. and LifeTechnologies Corp. have signed a definitive agreement under which Thermo FisherScientific will acquire Life Technologies for $76 in cash per fully dilutedcommon share, or approximately $13.6 billion, plus the assumption of net debtat close ($2.2 billion as of the end of 2012). The transaction has beenapproved by both companies' boards of directors.
"We are extremely excited about this transaction because itcreates the ultimate partner for our customers and significant value for ourshareholders," says Marc N. Casper, president and CEO of Thermo FisherScientific. "The acquisition of Life Technologies enhances all three elementsof our growth strategy: technological innovation, a unique customer valueproposition and expansion in emerging markets. Our customers in research andapplied markets will now be able to achieve even higher levels of innovationand productivity by working with the combined company. For our shareholders, weexpect the transaction to generate attractive financial returns, as well assignificant and immediate accretion to our adjusted EPS."
Gregory T. Lucier, chairman and CEO of Life Technologies,says, "this transaction brings together two companies intent on acceleratinginnovation for our customers and achieving greater success in a highlycompetitive global industry. Further, this combination delivers immediate andsignificant cash value to our stockholders and represents a successfulconclusion to the board's strategic review to enhance stockholder value anddevelop an even stronger future for Life Technologies."
With 2012 revenues of $3.8 billion, Life Technologies'product offering includes a broad range of reagents, consumables, instrumentsand systems. Life Technologies' leading technologies are protected byapproximately 5,000 patents and licenses. The company has an expansive commercialpresence and global footprint as well, with more than 10,000 employees servingits customers around the world.
Thermo Fisher Scientific's press release states that LifeTechnologies' president and chief operating officer, Mark P. Stevenson, willhave a significant leadership role in the combined company. In addition, ThermoFisher Scientific intends to elect to its board of directors a member of LifeTechnologies' board of directors.
There is seldom a deal—particularly one of thismagnitude—that makes everyone happy. Ratings and research firms were quick toweigh in with their opinions. Leerink Swann Research issued its "Bottom Line,"which stated, "We are increasing our valuation for TMO to a range of $92 to $94(from $79 to $81) following the announcement that it is acquiring Life. Wecontinue to rate TMO Outperform while we rate Life Market Perform, with a viewthat further upside to the $76 offer price is unlikely following a lengthystrategic review process." The research firm concluded that "the Lifetransaction could be >$1.15 accretive on an annualized basis to adjustedEPS. With $275 million in EBIT synergies (probably conservative) and an equitycomponent no greater than $4 billion, we believe the acquisition should be >$1.15accretive to adjusted earnings per share (EPS) on an annualized basis, once allsynergies are captured (year 3). TMO communicated an expectation that the dealshould be 90 cents to $1 accretive in the first year, with only tax synergiesand ~30 percent of the planned operating synergies (mostly removal of $75million in redundant public company costs)."
Fitch Ratings was not as kind, placing the ratings of thetwo companies on Rating Watch Negative following the announcement. Fitch saidthe funding of Thermo Fisher Scientific's acquisition of Life Technologies is"expected to pressure the Waltham, Mass.-based company's credit profile,leading to a downgrade of its ratings," and cited the amount of debt ThermoFisher Scientific winds up using as one factor that will affect the company'scredit profile.
On the upside, Thermo Fisher Scientific points out that theacquisition provides the opportunity for $275 million of adjusted operatingincome synergies in year three following the close, consisting of $250 millionof cost synergies and $25 million of revenue synergies. In addition, ThermoFisher Scientific expects the transaction to be significantly and immediatelyaccretive to adjusted EPS. But in one of those good news/bad news situations, asurvey across 2,172 researchers conducted by Percepta Associates less than 24hours after the announcement found that 49 percent were aware of the news, andof those, 795 respondents viewed the results as likely to be essentiallyneutral, 911 expressed disapproval and 411 approved. Respondents were mostpositive about logistical attributes—with product selection (including online),ease of ordering and shipping costs are expected to improve. Pricing,innovation, sales and technical support and overall ease of doing business wereall given predominantly neutral to negative ratings.
Life Technologies "is well-known for its next-generationsequencing capability," the Thermo Fisher Scientific press release points out,and indeed, Life Technologies' Ion Torrent NGS technology was on the minds ofvirtually everyone who attended the companies' webcast. The technology resultsin a sequencing system that is said to be simpler, faster, less expensive andmore scalable than any other technology available.
Life Technologies bought Ion Torrent for $375 million incash and stock in late 2010 with Ion Torrent also entitled to an additionalconsideration of $350 million in cash and stock upon the achievement of certaintechnical and time-based milestones through 2012. Ion Torrent's sequencingtechnology requires no proprietary chemistries or optics because it is based ona biochemical process. Dr. Jonathan Rothberg, the company's CEO, was labeled"key to this acquisition," by Stevenson.
Terms and conditions
Thermo Fisher Scientific will acquire Life Technologies for$76 in cash per fully diluted common share. The transaction, which is expectedto close early in 2014, is subject to a Life Technologies shareholder vote andsatisfying customary closing conditions, including regulatory approvals. ThermoFisher Scientific has obtained committed bridge financing from JP Morgan andBarclays. Of the $13.6 billion of total cash consideration, the company expectsthe split to be cash and debt of $9.5 to $10 billion and equity of up to $4 billion.Thermo Fisher Scientific expects to maintain an investment-grade rating afterthe transaction has closed.